Prospectus Supplement to Base Prospectus dated April 23, 2012 $1,252,105,000 SLM Student Loan Trust 2012-3 Issuing Entity SLM Funding LLC Depositor Sallie Mae, Inc. Sponsor, Servicer and Administrator Student Loan-Backed Notes On or about May 3, 2012, the trust will issue: Class Principal Interest Rate Maturity Floating Rate Class A Notes $1,214,500,000 1-month LIBOR plus 0.65% December 26, 2025 Floating Rate Class B Notes $ 37,605,000 1-month LIBOR plus 0.95% November 25, 2042 The trust will make payments primarily from collections on a pool of FFELP student loans. Interest and principal on the notes will be payable monthly on the 25 th day (or if such day is not a business day, the next business day) of each calendar month, beginning in June 2012. In general, the trust will pay principal to the class A notes until paid in full, and then to the class B notes until paid in full. Interest on the class B notes will be subordinate to interest on the class A notes and principal on the class B notes will be subordinate to both principal and interest on the class A notes. Credit enhancement for the notes consists of excess interest on the trust student loans, subordination of the class B notes to the class A notes, overcollateralization and the reserve account. In addition, the trust will deposit funds, on the closing date, into the capitalized interest account. These funds will be available only for a limited period of time. The interest rates on the notes will be determined by reference to LIBOR. A description of how LIBOR is determined appears under Additional Information Regarding the Notes Determination of Indices LIBOR in the base prospectus. We are offering the notes through the underwriters at the prices shown below when and if issued. We are not offering the notes in any state or other jurisdiction where the offer is prohibited. You should consider carefully the risk factors on page S-19 of this prospectus supplement and on page 21 of the base prospectus. The notes are assetbacked securities issued by and are obligations of the issuing entity, which is a trust. They are not obligations of or interests in SLM Corporation, the sponsor, administrator, servicer, depositor, any seller, any underwriter or any of their affiliates. The notes are not guaranteed or insured by the United States or any governmental agency. Price to Public Underwriting Discount Proceeds to the Depositor Per Floating Rate Class A Note 100.00% 0.17% 99.83% Per Floating Rate Class B Note 77.00% 0.25% 76.75% We expect the proceeds to the depositor in respect of the notes to be $1,241,297,188 before deducting expenses payable by the depositor estimated to be $725,000 and certain deposits to be made by the trust. Neither the SEC nor any state securities commission has approved or disapproved the securities or determined whether this prospectus supplement or the base prospectus is accurate or complete. Any contrary representation is a criminal offense. Joint Book-Runners BofA Merrill Lynch Credit Suisse RBS April 24, 2012
TABLE OF CONTENTS Prospectus Supplement Page Issuing Entity...S-1 Depositor...S-1 Sponsor, Servicer and Administrator...S-1 Indenture Trustee...S-1 Eligible Lender Trustee...S-1 Delaware Trustee...S-1 The Notes...S-2 Dates...S-2 Information About the Trust Student Loans...S-2 Information About the Notes...S-3 Indenture Trustee and Paying Agent...S-5 Administrator...S-5 Information About the Trust...S-5 Administration of the Trust...S-11 Termination of the Trust...S-14 Excess Distribution Certificateholder...S-16 Pool Asset Review...S-16 Tax Considerations...S-17 ERISA Considerations...S-17 Ratings of the Notes...S-18 No Listing...S-18 Risk Factors...S-18 Identification Numbers...S-18 Risk Factors...S-19 Federal Financial Regulatory Legislation Could Have An Adverse Effect On SLM Corporation, The Sponsor, The Servicer, The Depositor, The Sellers And The Trust, Which Could Result In Losses Or Delays In Payments On Your Notes...S-19 Page The Loan Conversion Program Included In The President s Recently Announced Student Loan Reforms Could Affect Future Estimated Cash Flows And Profitability On The Trust Student Loans...S-21 The Notes Are Not Suitable Investments For All Investors...S-22 Subordination Of The Class B Notes And Sequential Payment Of The Notes Result In A Greater Risk Of Loss...S-22 Investors In The Class B Notes Bear Greater Risk Of Loss Because The Priority Of Payment Of Interest And The Timing Of Principal Payments On The Class B Notes May Change Due To The Variability Of Cashflows...S-22 Certain Credit And Liquidity Enhancement Features Are Limited And If They Are Partially or Fully Depleted, There May Be Shortfalls In Distributions To Noteholders...S-23 The Notes May Be Assigned Lower Ratings From Other NRSROs Than Those Assigned By The Rating Agencies...S-23 A Lowering Of The Credit Rating Of The United States Of America May ii
Adversely Affect The Market Value Of Your Notes...S-24 The Characteristics Of The Trust Student Loans May Change...S-24 Any Inability Of The Trust To Acquire Additional Trust Student Loans Would Likely Cause You To Receive An Accelerated Principal Distribution...S-25 Certain Actions Can Be Taken Without Noteholder Approval...S-25 The Bankruptcy Of The Servicer Could Delay The Appointment Of A Successor Servicer Or Reduce Payments On Your Notes...S-26 The Trust May Be Affected By Delayed Payments From Borrowers Called To Active Military Service...S-26 Current Illiquid Market Conditions May Continue In The Future...S-27 Defined Terms...S-28 Formation of the Trust...S-28 The Trust...S-28 Capitalization of the Trust...S-29 Repurchase Requests...S-30 Eligible Lender Trustee...S-30 Delaware Trustee...S-31 Indenture Trustee and Paying Agent...S-32 Use of Proceeds...S-33 The Trust Student Loan Pool...S-33 General...S-33 Eligible Trust Student Loans...S-33 Additional Sellers...S-34 Certain Expenses...S-35 Characteristics of the Initial Trust Student Loans...S-35 Insurance of Trust Student Loans; Guarantors of Trust Student Loans...S-36 Cure Period for Trust Student Loans...S-37 Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims with Other Trusts...S-38 Third-Party Originators of FFELP Loans...S-39 Description of the Notes...S-39 General...S-39 The Notes...S-40 Supplemental Purchase Period...S-43 Servicing Compensation...S-43 Distributions...S-45 Distributions Following an Event of Default and Acceleration of the Maturity of the Notes...S-46 Voting Rights and Remedies...S-47 Credit Enhancement...S-47 Administration Fee...S-49 Determination of Indices...S-49 Notice of Interest Rates...S-50 Accounts...S-50 Trust Fees...S-50 Optional Purchase...S-51 Auction of Trust Assets...S-51 Static Pools...S-52 Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes...S-53 Pool Asset Review...S-54 U.S. Federal Income Tax Consequences...S-57 ERISA Considerations...S-57 Accounting Considerations...S-59 Reports to Noteholders...S-59 iii
Notice to Investors...S-60 Underwriting...S-61 No Listing...S-62 Ratings of the Notes...S-62 Compliance with Article 122a of the Capital Requirements Directive...S-63 Legal Matters...S-63 Glossary for Prospectus Supplement...S-64 Annex A: Characteristics of the Initial Trust Student Loan Pool...A-1 Exhibit I: Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes... I-1 iv
TABLE OF CONTENTS Base Prospectus Prospectus Summary... 8 Risk Factors... 21 Formation of the Issuing Entities... 43 Use of Proceeds... 45 The Depositor... 46 The Sponsor, Servicer and Administrator... 47 The Sellers... 49 The Student Loan Pools... 50 Sallie Mae s Student Loan Financing Business... 53 Transfer and Servicing Agreements... 63 Servicing and Administration... 66 Trading Information... 79 Description of the Notes... 81 Additional Information Regarding the Notes... 88 Certain Legal Aspects of the Student Loans... 129 U.S. Federal Income Tax Consequences... 135 European Union Directive on the Taxation of Savings Income... 147 State Tax Consequences... 148 ERISA Considerations... 148 Available Information... 151 Reports to Noteholders... 151 Incorporation of Documents by Reference... 152 The Plan of Distribution... 152 Legal Matters... 155 Appendix A: Federal Family Education Loan Program...A-1 Appendix B: Undergraduate and Graduate Loan Programs...B-1 Appendix C: Law Loan Programs... C-1 Appendix D: MBA Loan Programs... D-1 Appendix E: Medical Loan Programs...E-1 Appendix F: Dental Loan Programs...F-1 Appendix G: Direct-to- Consumer Loan Programs... G-1 Appendix H: Private Consolidation Loan Program... H-1 Appendix I: Career Training Loan Program... I-1 Appendix J: EFG Loan Programs... J-1 Appendix K: Smart Option Student Loan Program...K-1 Appendix L: Global Clearance, Settlement and Tax Documentation Procedures... L-1 v
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE BASE PROSPECTUS ATTACHED HERETO We provide information to you about the notes in two separate sections of this document that provide progressively more detailed information. These two sections are: the accompanying base prospectus which begins after this prospectus supplement and provides general information, some of which may not apply to your particular class of notes; and this prospectus supplement, which describes the specific terms of the notes being offered. We have not authorized anyone to provide you with different information. You should read both the base prospectus and this prospectus supplement to understand the notes. For your convenience, we include cross-references in this prospectus supplement and in the base prospectus to captions in these materials where you can find related information. NOTICE TO INVESTORS The notes may not be offered or sold to persons in the United Kingdom in a transaction that results in an offer to the public within the meaning of the securities laws of the United Kingdom. FORWARD-LOOKING STATEMENTS Certain statements contained in or incorporated by reference in this prospectus supplement and the accompanying base prospectus consist of forward-looking statements relating to future economic performance or projections and other financial items. These statements can be identified by the use of forward-looking words such as may, will, should, expects, believes, anticipates, estimates, or other comparable words. Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ from the projected results. Those risks and uncertainties include, among others, general economic and business conditions, regulatory initiatives and compliance with governmental regulations, customer preferences and various other matters, many of which are beyond our control. Because we cannot predict the future, what actually happens may be very different from what is contained in our forward-looking statements. vi
SUMMARY OF PARTIES TO THE TRANSACTION* SLM Education Credit Finance Corporation** (Seller) Bluemont Funding LLC** (Seller) Town Hall Funding LLC** (Seller) Town Center Funding LLC** (Seller) VL Funding LLC** (Seller) Sallie Mae, Inc.** (Sponsor, Servicer and Administrator) Administration of the Issuing Entity Servicing of the trust student loans SLM Funding LLC** (Depositor) SLM Student Loan Trust 2012-3 (Issuing Entity) The Bank of New York Mellon Trust Company, National Association (Eligible Lender Trustee) Deutsche Bank National Trust Company (Indenture Trustee) Deutsche Bank Trust Company Delaware (Delaware Trustee) Class A Notes Class B Notes Excess Distribution Certificate * This chart provides only a simplified overview of the relations between the key parties to the transaction. Refer to this prospectus supplement for a further description. ** Each of these entities is a direct or indirect wholly-owned subsidiary of SLM Corporation. vii
PAYMENT FLOWS AND DELIVERIES Loans for $ SLM Funding LLC Notes for $ and Loans $ for Loans Sellers $ for Notes Notes for $ Underwriters $ and Loans for Notes SLM Student Loan Trust 2012 3 Distributions of $ (on behalf of Investors) Legal Title to Loans Interim Eligible Lender Trustee (for SLM Funding) $ for Notes Notes for $ Legal Title to Loans Investors Distributions of $ to Investors Indenture Trustee Eligible Lender Trustee (for the Trust) viii
SUMMARY OF TERMS This summary highlights selected information about the notes. It does not contain all of the information that you might find important in making your investment decision. It provides only an overview to aid your understanding and is qualified by the full description of the information contained in this prospectus supplement and the attached base prospectus. You should read the full description of this information appearing elsewhere in this document and in the base prospectus to understand all of the terms of the offering of the notes. ISSUING ENTITY SLM Student Loan Trust 2012-3, which is a Delaware statutory trust. It was formed on April 10, 2012, under a shortform trust agreement dated as of the same date. Its principal address is in care of The Bank of New York Mellon Trust Company, National Association, 10161 Centurion Parkway, Jacksonville, Florida 32256. We sometimes refer to the issuing entity as the trust. DEPOSITOR SLM Funding LLC, which is a Delaware limited liability company. Its principal address is 2001 Edmund Halley Drive, Reston, Virginia 20191. SPONSOR, SERVICER AND ADMINISTRATOR Sallie Mae, Inc., which is a Delaware corporation. Its principal address is 2001 Edmund Halley Drive, Reston, Virginia 20191. Sallie Mae, Inc. is an affiliate of the depositor and each seller. INDENTURE TRUSTEE Deutsche Bank National Trust Company, which is a national banking association. Its principal corporate trust address is 100 Plaza One, Jersey City, New Jersey 07311. ELIGIBLE LENDER TRUSTEE The Bank of New York Mellon Trust Company, National Association, which is a national banking association. It is the eligible lender trustee under the trust agreement, and will hold legal title to the trust student loans on behalf of the trust. It maintains an address at 10161 Centurion Parkway, Jacksonville, Florida 32256. Although The Bank of New York Mellon Trust Company, National Association, will be the initial eligible lender trustee, we expect that the eligible lender trustee will be replaced shortly after the closing date. DELAWARE TRUSTEE Deutsche Bank Trust Company Delaware, which is a Delaware banking corporation. The Delaware trustee will act in the capacities required under the Delaware Statutory Trust Act and under the trust agreement. Its principal Delaware address is 1011 Centre Road, Suite 200, Wilmington, Delaware 19805. S-1
THE NOTES The trust will issue the notes under an indenture to be dated as of the closing date. The trust is offering the following classes of notes, which are debt obligations of the trust: Class A Notes Floating Rate Class A Student Loan- Backed Notes in the amount of $1,214,500,000. Class B Notes Floating Rate Class B Student Loan- Backed Notes in the amount of $37,605,000. We sometimes refer to the class A and class B notes, collectively, as the notes. DATES The closing date for this offering will be on or about May 3, 2012. The information in this prospectus supplement about the initial trust student loans is calculated and presented as of March 28, 2012. We refer to this date as the statistical cutoff date. The cutoff date for the pool of initial trust student loans will be the closing date. We sometimes refer to this date as the initial cutoff date. The trust will be entitled to receive all collections and proceeds on the initial trust student loans on or after the closing date. A distribution date for the notes is the 25 th day of each month, beginning in June 2012. If any 25 th calendar day is not a business day, the distribution date will be the next business day. Interest and principal will be payable to holders of record as of the close of business on the record date, which is the day before the related distribution date. The supplemental purchase period for purchasing additional trust student loans with funds on deposit in the supplemental purchase account begins on the closing date and ends on May 31, 2012. For any distribution date, the related collection period is the prior calendar month. However, the first collection period will begin on the closing date and end on May 31, 2012. INFORMATION ABOUT THE TRUST STUDENT LOANS The notes will receive payments primarily from collections on (1) the initial trust student loans acquired by the trust on the closing date and (2) any additional trust student loans acquired by the trust from time to time during the supplemental purchase period. The trust student loans will be selected from a pool of student loans comprised of Stafford and PLUS loans. S-2
We refer to the pool of student loans purchased by the trust on the closing date as the initial trust student loans; we refer to any student loans purchased by the trust during the supplemental purchase period as the additional trust student loans; and we refer to the initial trust student loans and the additional trust student loans, collectively, as the trust student loans. The trust may acquire additional trust student loans during the supplemental purchase period from amounts on deposit in the supplemental purchase account. The cutoff dates for these additional trust student loans will be the dates those loans are purchased by the trust (which we refer to as subsequent cutoff dates). The trust will be entitled to receive all collections and proceeds on these additional trust student loans on and after their respective subsequent cutoff dates. INFORMATION ABOUT THE NOTES Interest Payments. Interest will generally accrue on the outstanding principal balance of each class of notes during one-month accrual periods and will be paid on each distribution date. Generally, each accrual period for the notes begins on a distribution date and ends on the day before the next distribution date. The first accrual period for the notes, however, will begin on the closing date and end on June 24, 2012, the day before the first distribution date. Each class of notes will bear an annual interest rate equal to the sum of onemonth LIBOR (except for the first accrual period) and the applicable spread listed in the table below: Class Spread Class A... plus 0.65% Class B... plus 0.95% LIBOR for the first accrual period will be determined by the following formula: x + [ 21 / 29 * (y-x) ] where: x = one-month LIBOR, and y = two-month LIBOR. The administrator will determine LIBOR as specified under Additional Information Regarding the Notes Determination of Indices LIBOR in the base prospectus. The administrator will calculate interest on the notes based on the actual number of days elapsed in each accrual period divided by 360. Principal Payments. Principal will be payable on the notes on each distribution date in an amount generally equal to the principal distribution amount for that distribution date. Priority of Principal Payments. In general, principal on the notes will be paid sequentially on each distribution date as follows: S-3
first, to the class A noteholders, the class A noteholders principal distribution amount, until the principal balance of the class A notes is reduced to zero; and then second, to the class B noteholders, the class B noteholders principal distribution amount, until the principal balance of the class B notes is reduced to zero. See Description of the Notes Distributions in this prospectus supplement for a more detailed description of principal payments. See also Description of the Notes Distributions Following an Event of Default and Acceleration of the Maturity of the Notes in this prospectus supplement for a description of the cashflows and priority of payments on each distribution date following the occurrence of an event of default and the acceleration of the maturity of the notes. Maturity Dates. Each class of notes will mature no later than the date set forth in the table below for that class: Class Maturity Date Class A... December 26, 2025 Class B... November 25, 2042 The actual maturity of any class of notes could occur earlier if, for example, there are higher than anticipated prepayment rates on the trust student loans; the servicer exercises its option to purchase all remaining trust student loans, which will not occur until the first distribution date on which the pool balance is 10% or less of the initial pool balance; or the indenture trustee auctions all remaining trust student loans, which absent an event of default under the indenture, will not occur until the first distribution date on which the pool balance is 10% or less of the initial pool balance. The initial pool balance is equal to the sum of: (i) the pool balance as of the closing date and (ii) all amounts deposited into the supplemental purchase account on the closing date. Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes. The projected weighted average life, expected maturity date and percentage of the remaining principal balance of each class of notes under various assumed prepayment scenarios may be found in Exhibit I, Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes, attached hereto. Subordination of the Class B Notes. Payments of interest on the class B notes will be subordinate to the payments of interest on the class A notes. In general, payments of principal on the class B notes will be subordinate to the payment of both interest and principal on the class A notes. See Description of the Notes The Notes The Class B Notes Subordination of the Class B Notes in this prospectus supplement. Denominations. Each class of notes will be available for purchase in minimum denominations of $100,000 and additional increments of $1,000. The notes will be available only in book-entry S-4
form through The Depository Trust Company, Clearstream, Luxembourg and the Euroclear System. You will not receive a certificate representing your notes except in very limited circumstances. Security for the Notes. The notes will be secured by the assets of the trust, which consist primarily of the trust student loans. Overcollateralization. Overcollateralization represents the amount by which the sum of the pool balance, the specified reserve account balance and the amount on deposit in the capitalized interest account (following any distributions from such account on the related distribution date), exceeds the aggregate outstanding principal balance of the notes and is intended to provide credit enhancement for the notes. On the closing date, the overcollateralization amount is expected to equal $11,371,392. The application of available funds set forth under Description of the Notes Distributions Distributions from the Collection Account in this prospectus supplement is designed to build the level of overcollateralization to, and maintain it at, a specified overcollateralization amount. The amount of overcollateralization will vary from time to time depending on the rate and timing of principal payments on the trust student loans, capitalization of interest, certain borrower fees and the incurrence of losses, if any, on the trust student loans. See Description of the Notes Credit Enhancement Overcollateralization in this prospectus supplement. INDENTURE TRUSTEE AND PAYING AGENT The trust will issue the notes under an indenture to be dated as of the closing date. Under the indenture, Deutsche Bank National Trust Company will act as indenture trustee for the benefit of and to protect the interests of the noteholders and will act as paying agent for the notes. ADMINISTRATOR Sallie Mae, Inc. will act as the administrator of the trust under an administration agreement to be dated as of the closing date. Sallie Mae, Inc. is a Delaware corporation and a whollyowned subsidiary of SLM Corporation. Subject to certain conditions, Sallie Mae, Inc. may transfer its obligations as administrator to an affiliate. See Servicing and Administration Administration Agreement in the base prospectus. INFORMATION ABOUT THE TRUST Formation of the Trust The trust is a Delaware statutory trust. The only activities of the trust are acquiring, owning and managing the trust student loans and holding the other assets of the trust, issuing and making payments on the notes and other related activities. See Formation of the Trust The Trust in this prospectus supplement. The depositor is SLM Funding LLC. It is a Delaware limited liability company whose sole member is SLM Education Credit Finance Corporation, which we sometimes refer to as SLM ECFC. S-5
The depositor will acquire the initial trust student loans from one or more of SLM ECFC, Bluemont Funding LLC, Town Center Funding LLC, Town Hall Funding LLC and VL Funding LLC under separate purchase agreements and will subsequently sell them to the trust on the closing date under the sale agreement. We sometimes refer to Bluemont Funding LLC as Bluemont Funding, to Town Center Funding LLC as Town Center Funding, to Town Hall Funding LLC as Town Hall Funding and to VL Funding LLC as VL Funding. We also sometimes refer to each of SLM ECFC, Bluemont Funding, Town Center Funding, Town Hall Funding and VL Funding as a seller or collectively as the sellers, as applicable. The sale agreement and purchase agreements will each be dated as of the closing date. The depositor will acquire any additional trust student loans from one or more of the sellers under additional purchase agreements and will sell them to the trust from time to time during the supplemental purchase period, provided there are sufficient funds on deposit in the supplemental purchase account. The Bank of New York Mellon Trust Company, National Association, as interim eligible lender trustee, will hold legal title to the trust student loans for the depositor under an interim trust agreement. Its Assets The assets of the trust will include: the trust student loans; collections and other payments on the trust student loans; and funds it will hold from time to time in its trust accounts, including a collection account, a reserve account, a supplemental purchase account, a capitalized interest account, and a floor income rebate account. The rest of this section describes the trust student loans and trust accounts more fully. Trust Student Loans. The trust student loans (including the initial trust student loans and any additional trust student loans) are education loans to students and parents of students made under the Federal Family Education Loan Program, known as the FFELP. Approximately 91.0% of the initial trust student loans by principal balance are Stafford loans, and approximately 9.0% are PLUS loans. None of the trust student loans are consolidation loans. See Appendix A Federal Family Education Loan Program in the base prospectus for a description of each type of FFELP loan. Initial Trust Student Loans. The initial trust student loans have been selected from the student loans owned by the sellers, or have been acquired by the related seller from one or more of its affiliates, based on the criteria established by the depositor, as described in this prospectus supplement and the base prospectus. The depositor will acquire the initial trust student loans from one or more of the sellers on the closing date. S-6
As of the statistical cutoff date, the initial trust student loans had a pool balance of approximately $1,249,353,009. As of the statistical cutoff date, the weighted average annual borrower interest rate of the initial trust student loans was approximately 6.41% and their weighted average remaining term to scheduled maturity was approximately 124 months. Special allowance payments on the initial trust student loans are currently based on one-month LIBOR as to approximately 96.12% of the initial trust student loans by principal balance and the 91-day Treasury bill rate as to approximately 3.88% of the initial trust student loans by principal balance. For more details concerning the initial trust student loans, see Annex A Characteristics of the Initial Trust Student Loan Pool attached to this prospectus supplement. Approximately 0.9% of the initial trust student loans by principal balance are 100% guaranteed, approximately 11.6% of the initial trust student loans by principal balance are 98% guaranteed and approximately 87.5% of the initial trust student loans by principal balance are 97% guaranteed, in each case, with respect to principal and interest by the guaranty agencies described in Annex A to this prospectus supplement and reinsured by the Department of Education under the Higher Education Act. Significant Guarantor. The guaranty agencies described in Annex A to this prospectus supplement guarantee all of the initial trust student loans. United Student Aid Funds, Inc., which guarantees approximately 60.4% of the initial trust student loans by principal balance, is the only guarantor that guarantees more than 10% of the initial trust student loans by principal balance. See The Trust Student Loan Pool Insurance of Trust Student Loans; Guarantors of Trust Student Loans in this prospectus supplement. The initial trust student loans are also reinsured by the United States Department of Education. Additional Trust Student Loans. From time to time during the supplemental purchase period, the depositor may acquire additional trust student loans from the sellers to the extent that the trust has sufficient funds on deposit in the supplemental purchase account for the purchase of such additional trust student loans. Each applicable seller will have the right from time to time under the related purchase agreement to sell additional trust student loans to the depositor during the supplemental purchase period. All additional trust student loans purchased by the depositor are required under the sale agreement to be immediately sold to the trust, provided there are sufficient funds on deposit in the supplemental purchase account. All additional trust student loans will be sold to the trust at a price equal to 100% of the outstanding principal S-7
balance of each additional trust student loan, plus accrued interest to be capitalized. All additional trust student loans purchased by the trust will be required to satisfy certain eligibility criteria as described under The Trust Student Loan Pool in this prospectus supplement. We sometimes refer to additional trust student loans which satisfy the required eligibility criteria as eligible student loans in this prospectus supplement. See The Trust Student Loan Pool Eligible Trust Student Loans in this prospectus supplement. All additional trust student loans will also be guaranteed by guaranty agencies and reinsured by the United States Department of Education. Collection Account. The administrator will establish and maintain the collection account as an asset of the trust in the name of the indenture trustee. The trust will make an initial deposit from the net proceeds of the sale of the notes into the collection account on the closing date. The deposit will be in cash or eligible investments equal to $6,110,000 plus the excess, if any, of the pool balance as of the statistical cutoff date over the pool balance as of the closing date to the extent such excess amount is not deposited into the supplemental purchase account. See Servicing and Administration Accounts in the base prospectus for a more complete description of eligible investments. The administrator will deposit collections on the trust student loans, interest subsidy payments, special allowance payments and certain other funds into the collection account, all as described in this prospectus supplement and the base prospectus. Supplemental Purchase Account. On the closing date, the administrator will establish and maintain the supplemental purchase account as an asset of the trust in the name of the indenture trustee. The trust will make a deposit from the net proceeds of the sale of the notes into the supplemental purchase account on the closing date. The deposit will be in cash or eligible investments equal to the excess, if any, of the pool balance as of the statistical cutoff date over the estimated pool balance as of the closing date, but not to exceed 10% of the pool balance as of the statistical cutoff date. Funds on deposit in the supplemental purchase account will be used to purchase additional trust student loans from time to time during the supplemental purchase period. Any amounts remaining on deposit in the supplemental purchase account at the end of the supplemental purchase period will be transferred to the collection account on the business day immediately following the end of that period and will be included as a part of available funds on the initial distribution date. Amounts on deposit in the supplemental purchase account will not be replenished. S-8
Reserve Account. The administrator will establish and maintain a reserve account as an asset of the trust in the name of the indenture trustee. The trust will make an initial deposit from the net proceeds of the sale of the notes into the reserve account on the closing date. The deposit will be in cash or eligible investments equal to $3,123,383. Funds in the reserve account may be replenished on each distribution date to the extent additional funds are available after all prior required distributions have been made. See Description of the Notes Distributions in this prospectus supplement. The amount required to be on deposit in the reserve account at any time, or the specified reserve account balance, is equal to the greater of: 0.25% of the pool balance, as of the end of the related collection period; and $1,249,353. The specified reserve account balance will be subject to adjustment as described in this prospectus supplement. In no event will it exceed the aggregate outstanding balance of the notes. To the extent funds are available in the reserve account, such funds will be applied on each distribution date to cover any shortfalls in payments of primary servicing and administration fees, the class A noteholders interest distribution amount and the class B noteholders interest distribution amount. In addition, to the extent funds are available in the reserve account, such funds will be applied: on the maturity date for the class A notes and upon termination of the trust, to cover shortfalls in payments of the class A noteholders principal and accrued interest; and on the maturity date for the class B notes and upon termination of the trust, to cover shortfalls in payments of the class B noteholders principal and accrued interest and any carryover servicing fees. If the amount on deposit in the reserve account on any distribution date, after giving effect to all deposits or withdrawals from the reserve account on that distribution date, is greater than the specified reserve account balance for that distribution date, subject to certain limitations, the administrator will instruct the indenture trustee in writing to deposit the amount of such excess into the collection account to be included as part of available funds on that distribution date. If the market value of cash and eligible investments in the reserve account on any distribution date is sufficient to pay the remaining aggregate principal balance of the notes, any interest accrued on the notes and any carryover servicing fees, amounts on deposit in that account will be so applied on that distribution date. S-9
The reserve account enhances the likelihood of payment to noteholders. In certain circumstances, however, the reserve account could be partially or fully depleted. This depletion could result in shortfalls in distributions to noteholders. See Description of the Notes Credit Enhancement Reserve Account in this prospectus supplement. Capitalized Interest Account. The administrator will establish and maintain a capitalized interest account as an asset of the trust in the name of the indenture trustee. The trust will make an initial deposit from the net proceeds of the sale of the notes into the capitalized interest account on the closing date. The deposit will be in cash or eligible investments equal to $11,000,000. To the extent funds are available in the capitalized interest account, such funds will be applied to cover shortfalls in payments of primary servicing and administration fees, the class A noteholders interest distribution amount and the class B noteholders interest distribution amount, in that order, after application of funds available in the collection account at the end of the related collection period but before application of funds available in the reserve account. Notwithstanding the foregoing, funds on deposit in the capitalized interest account may be withdrawn by the administrator at any time to pay any amounts owed to the Department of Education in respect of any shortfalls in amounts on deposit in the floor income rebate account as described below under Floor Income Rebate Account in this prospectus supplement. Funds in the capitalized interest account will not be replenished. All funds remaining on deposit in the capitalized interest account on the May 2013 distribution date will be transferred to the collection account and included in available funds on that distribution date. The capitalized interest account further enhances the likelihood of timely interest payments to noteholders through the May 2013 distribution date. Floor Income Rebate Account. The administrator will establish and maintain a floor income rebate account as an asset of the trust in the name of the indenture trustee. On or before each distribution date, the administrator will instruct the indenture trustee to transfer from the collection account to the floor income rebate account the monthly accrual of interest paid by borrowers on trust student loans originated on or after April 1, 2006 that exceeds the special allowance support levels applicable to such trust student loans, which we refer to in this prospectus supplement as floor income. These deposited amounts will be used to offset the amount of floor income, if any, that is expected to be netted by the Department of Education against the interest subsidy payments and/or special allowance payments otherwise due to the trust for that collection period. Once the Department of Education has netted all payments, which S-10
currently occurs on a quarterly basis, on the next succeeding distribution date all sums on deposit in the floor income rebate account during the previous collection period will be withdrawn and included in available funds on such date. ADMINISTRATION OF THE TRUST Distributions Sallie Mae, Inc., as administrator, will instruct the indenture trustee to withdraw funds on deposit in (i) the collection account, (ii) to the extent available, the floor income rebate account, and (iii) to the extent required, the reserve account and the capitalized interest account on each distribution date. Available funds will be applied on each applicable distribution date generally as shown in the chart on the following page of this prospectus supplement. See Description of the Notes Distributions in this prospectus supplement for a more detailed description of distributions. S-11
Distribution Date Cashflows COLLECTION ACCOUNT 1st SERVICER (Primary Servicing Fee) 2nd ADMINISTRATOR (Administration Fee) 3rd CLASS A NOTEHOLDERS (Class A Noteholders Interest Distribution Amount) 4th CLASS B NOTEHOLDERS (Class B Noteholders Interest Distribution Amount) 5th RESERVE ACCOUNT (Amount, if any, necessary to reinstate the reserve account balance to the Specified Reserve Account Balance) 6th CLASS A NOTEHOLDERS (Class A Noteholders Principal Distribution Amount) 7th CLASS B NOTEHOLDERS (Class B Noteholders Principal Distribution Amount) 8th 9th INDENTURE TRUSTEE (Any unpaid fees and expenses, to the extent such amounts have not been paid by the administrator) SERVICER (Carryover Servicing Fee, if any) (to the class A notes and the class B notes, sequentially, in that order, until paid in full) 10th CLASS A AND CLASS B NOTEHOLDERS (In the event the trust student loans are not sold on the earliest possible trust auction date, on each subsequent distribution date, any remaining amounts) 11th EXCESS DISTRIBUTION CERTIFICATEHOLDER (Any remaining amounts) S-12
Transfer of the Assets to the Trust Under a sale agreement, the depositor will sell the initial trust student loans to the trust. Additional trust student loans, if any, will be sold by the depositor to the trust under additional sale agreements, each of which will be executed pursuant to the terms of the original sale agreement. The eligible lender trustee will hold legal title to the trust student loans on behalf of the trust. If the depositor breaches a representation under the initial sale agreement regarding an initial trust student loan or an additional sale agreement regarding an additional trust student loan, generally the depositor will have to cure the breach, repurchase or replace that trust student loan or reimburse the trust for losses resulting from the breach. Each seller will have similar obligations under the purchase agreements. See Transfer and Servicing Agreements Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers in the base prospectus. Servicing of the Assets Under a servicing agreement, Sallie Mae, Inc., as servicer, will be responsible for servicing, maintaining custody of and making collections on the trust student loans. It will also bill and collect payments from the guaranty agencies and the Department of Education. See Servicing and Administration Servicing Procedures and Administration Agreement in the base prospectus. Under some circumstances, the servicer may transfer its obligations as servicer. See Servicing and Administration Matters Regarding the Servicer in the base prospectus. If the servicer breaches a covenant under the servicing agreement regarding a trust student loan, generally, the servicer will have to cure the breach, purchase the related trust student loan or reimburse the trust for losses resulting from such breach. See The Trust Student Loan Pool Cure Period for Trust Student Loans in this prospectus supplement. Compensation of the Servicer The servicer will receive two separate fees: a primary servicing fee and a carryover servicing fee. The primary servicing fee for any month will equal the sum of the monthly servicing fees for the trust student loans owned by the trust during that month. The monthly servicing fee for a trust student loan will be calculated on a unit basis and will equal (i) $1.50 per month per borrower for trust student loans that are in in-school status, (ii) $2.75 per month per borrower for trust student loans that are in grace status and (iii) $3.25 per month per borrower for all other trust student loans. A student loan s current payment status will be determined as of the last day of each month. In the event a borrower has more than one trust student loan and those loans are in different payment statuses, the monthly servicing fee will be paid at the higher unit rate. In no event, however, will the primary servicing fee for any month exceed 1 / 12 of 0.90% of the aggregate outstanding principal balance of the trust student loans, calculated as of the closing date S-13
or the first day of the preceding calendar month, as the case may be. The servicing agreement provides that the servicer may annually increase its fees by an amount equal to the percentage increase in the U.S. Department of Labor s Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S. City Average for the most recent twelve-month period available at the time of each such annual adjustment; provided, that such increase shall not be less than 3% per annum. The primary servicing fee will be payable in arrears out of available funds and amounts on deposit in the collection account, the capitalized interest account and the reserve account on each distribution date beginning in June 2012. Primary servicing fees due and payable to the servicer will include amounts from any prior distribution dates that remain unpaid. The carryover servicing fee will be payable to the servicer on each distribution date out of available funds. The carryover servicing fee is equal to the sum of: the amount, if any, of primary servicing fees accrued in excess of 1 / 12 of 0.90% of the aggregate outstanding principal balance of the trust student loans that remains unpaid from prior distribution dates; the amount of specified increases in the costs incurred by the servicer; the amount of specified conversion, transfer and removal fees; any amounts described in the first three bullets that remain unpaid from prior distribution dates; and interest on any unpaid amounts. See Description of the Notes Servicing Compensation in this prospectus supplement. TERMINATION OF THE TRUST The trust will terminate upon: the maturity or other liquidation of the last trust student loan and the disposition of any amount received upon its liquidation; and the payment of all amounts required to be paid to the noteholders. See The Student Loan Pools Termination in the base prospectus. Optional Purchase The servicer may purchase or arrange for the purchase of all remaining trust student loans on any distribution date on or after the first distribution date on which the pool balance is 10% or less of the initial pool balance. The exercise of this purchase option will result in the early retirement of the remaining notes. The purchase price will equal the amount required to prepay in full, including all accrued and unpaid interest, the remaining trust student loans as of the end of the preceding collection period, but not less than a prescribed minimum purchase amount. This prescribed minimum purchase amount is the amount that would be sufficient to: S-14
pay to noteholders the interest payable on the related distribution date; and reduce the outstanding principal balance of each class of notes then outstanding on the related distribution date to zero. See The Student Loan Pools Termination in the base prospectus. In addition to the optional purchase right described above, the servicer will also have an option, but not the obligation, to purchase any trust student loan on any date; provided, that the servicer may not purchase trust student loans if the cumulative aggregate principal balance of all trust student loans so purchased, including the principal balance of any trust student loans to be purchased on such date, exceeds 2% of the initial pool balance. The purchase price for any trust student loans purchased by the servicer using this option will be equal to the outstanding principal balance of such trust student loans plus accrued and unpaid interest through the date of purchase. Auction of Trust Assets The indenture trustee may, and at the written direction of either the administrator or noteholders holding a majority of the outstanding principal balance of all of the notes will, either itself or through an agent, offer for sale all remaining trust student loans at the end of the first collection period when the pool balance is 10% or less of the initial pool balance. If such an auction takes place, the trust auction date will be the third business day before the related distribution date. An auction may be consummated only if the servicer has first waived its optional right to purchase all of the remaining trust student loans as described above. The servicer will waive its option to purchase all of the remaining trust student loans if it fails to notify the eligible lender trustee and the indenture trustee or its agent, in writing, that it intends to exercise its purchase option before the indenture trustee accepts a bid to purchase the trust student loans. The depositor and its affiliates, including SLM ECFC and the servicer, and unrelated third parties may offer bids to purchase the trust student loans. The depositor or any affiliate may not submit a bid representing greater than fair market value of the trust student loans. If an auction is conducted and at least two bids are received, the indenture trustee or its agent will solicit and resolicit new bids from all participating bidders until only one bid remains or the remaining bidders decline to resubmit bids. The indenture trustee or its agent will accept the highest remaining bid if it equals or exceeds the higher of: the minimum purchase amount described under Optional Purchase above (plus any amounts owed to the servicer as carryover servicing fees); or the fair market value of the trust student loans as of the end of the related collection period. If at least two bids are not received or the highest bid after the re-solicitation process does not equal or exceed the minimum purchase amount described above, the indenture trustee or its agent will not complete the sale. The indenture trustee or its agent may, and S-15
at the direction and at the sole cost and expense of the depositor will be required to, consult with a financial advisor, which may include an underwriter of the notes or the administrator, to determine if the fair market value of the trust student loans has been offered. See The Student Loan Pools Termination in the base prospectus. The net proceeds of any auction sale will be used to retire any outstanding notes on the next distribution date. If the sale is not completed, the indenture trustee may, and at the written direction of either the administrator or noteholders holding a majority of the outstanding principal balance of all of the notes shall, solicit bids for sale of the trust student loans after future collection periods upon terms similar to those described above, including the servicer s waiver of its option to purchase all of the remaining trust student loans. The indenture trustee may or may not succeed in soliciting acceptable bids for the trust student loans either on the trust auction date or subsequently. If the trust student loans are not sold on the earliest possible trust auction date as described above, on each subsequent distribution date, if the amount on deposit in the reserve account after giving effect to all withdrawals, except withdrawals payable to the depositor, exceeds the specified reserve account balance, the administrator will direct the indenture trustee to distribute the amount of the excess as accelerated payments of note principal. See The Student Loan Pools Termination in the base prospectus. EXCESS DISTRIBUTION CERTIFICATEHOLDER Under the trust agreement, the trust will also issue an excess distribution certificate to the depositor. This excess distribution certificate will represent the ownership of the residual interest in the trust. The depositor intends to transfer the excess distribution certificate to SLM ECFC. At any time thereafter, SLM ECFC may transfer ownership of the excess distribution certificate to another affiliate of SLM Corporation and/or it may be sold to an unaffiliated third party. The excess distribution certificate is not being offered for sale by this prospectus supplement. Distributions on the Excess Distribution Certificate. The excess distribution certificate will not bear interest and will not have a principal balance. In general, distributions on the excess distribution certificate will be made only after all of the notes have received all amounts due on a distribution date. See Principal Distributions above and Description of the Notes Distributions in this prospectus supplement. POOL ASSET REVIEW In connection with the offering of the notes, the sponsor and the depositor have performed a review of the trust student loans and the disclosure regarding the trust student loans that is required to be included in this prospectus supplement and the base prospectus by Item 1111 of Regulation AB (which disclosure we refer to herein as Rule 193 information ). Designed and effectuated to provide the depositor with reasonable assurance that the Rule 193 information is accurate in all material respects, this S-16